Economy in U.S. Grew at Revised 0.4% Pace in Fourth Quarter

Gross domestic product rose at a 0.4 percent annual rate, up from a 0.1 percent prior estimate and following a 3.1 percent pace in the third quarter, revised Commerce Department figures showed today in Washington. Photographer: Ken James/Bloomberg

March 28 (Bloomberg) -- The U.S. economy grew at a faster
pace than previously estimated in the fourth quarter, reflecting
a bigger gain in business spending and a smaller trade gap.

Gross domestic product rose at a 0.4 percent annual rate,
up from a 0.1 percent prior estimate and following a 3.1 percent
pace in the third quarter, revised Commerce Department figures
showed today in Washington. The fourth-quarter slowdown was due
to the biggest slump in military spending since 1972 and a
reduction in the rate of inventory building.

The world’s largest economy is projected to accelerate in
the first quarter as companies invest in new equipment and
rebuild depleted stockpiles, while consumers keep spending in
the face of higher taxes. The pace of growth and efforts to
drive down joblessness help explain why Federal Reserve policy
makers are sticking to asset-purchase plans.

“Certainly we would like to see stronger growth, but we
did have some one-time drags at the end of 2012,” said Gus
Faucher, a senior economist at PNC Financial Services Group Inc.
in Pittsburgh, who correctly projected the GDP revision. “I
would expect growth to pick up through 2013. Consumers spending
looks like it’s holding up pretty well despite the increase in
taxes. The housing market is certainly a big plus. Then business
investment growth is pretty good. Profits are good.”

The median projection in a Bloomberg survey for the
Commerce Department’s third estimate of fourth-quarter GDP
called for a 0.5 percent increase. Forecasts from the 79
economists surveyed ranged from 0.1 percent to 0.8 percent.

Jobless Claims

Another report showed more Americans than forecast filed
applications for unemployment benefits last week, bringing a
halt to the recent progress in the labor market. First-time
jobless claims rose by 16,000 to 357,000 in the week ended March
23, the highest level in more than a month, the Labor Department
said today in Washington. Economists surveyed by Bloomberg
projected 340,000 claims.

Stock-index futures held gains after the figures. The
contract on the Standard & Poor’s 500 Index expiring in June
rose 0.1 percent to 1,557.9 at 8:35 a.m. in New York.

For all of 2012, the world’s largest economy expanded 2.2
percent after a 1.8 percent gain in the prior year.

Today’s report offered a first look at corporate profits.
Earnings increased 2.3 percent in the fourth quarter after
rising 2.4 percent in the prior period. They climbed 3.1 percent
from the same time in 2011.

Business Spending

A bigger increase in the rate of business investment in
structures and a smaller trade gap accounted for the upward
revisions to fourth-quarter growth.

Corporate spending on buildings increased at a revised 16.7
percent annual rate in the fourth quarter, the most in more than
a year, after a previously reported 5.8 percent pace.

A revision to the trade gap showed a smaller difference
between exports and imports. The deficit shrank to $384.7
billion from $395.2 billion in the previous three months. The
narrowing contributed 0.33 percentage point to growth, compared
with a previous estimate of 0.24 point.

While the expansion slowed last quarter, Fed officials have
said they see signs the economy is poised for a pickup in 2013.
Data on the labor market, consumer spending and business
investment suggest “a return to moderate economic growth
following a pause late last year,” the Federal Open Market
Committee said in a March 20 statement.

Federal Reserve

The central bank last week repeated that it would hold its
benchmark interest rate near zero as long as joblessness stayed
above 6.5 percent and the outlook for inflation was below 2.5
percent. It also said it would keep up its bond buying at a pace
of $85 billion a month to bolster the expansion.

Consumer spending, about 70 percent of the economy, climbed
at a 1.8 percent rate last quarter, revised from a previously
estimated 2.1 percent, today’s figures showed.

Business spending on equipment and software climbed at a
11.8 percent pace after dropping at a 2.6 percent rate in the
previous quarter. It added 0.82 percentage point to growth.

Residential investment, a bright spot for the U.S.
expansion, rose at a revised 17.6 percent pace from October
through December following a 13.5 percent rate in the third
quarter.

Inventories subtracted 1.52 percentage points from fourth-quarter growth compared with a previously reported 1.55
percentage points. Stockpiles were rebuilt at a $13.3 billion
annual pace after a $60.3 billion rate in the third quarter.

Industrial Production

Leaner inventories may make way for a first-quarter pickup
in production as consumer spending holds up amid higher payroll
taxes. Congress allowed the payroll tax to return to its 2010
level of 6.2 percent from 4.2 percent at the start of the year,
which means an American who earns $50,000 is taking home about
$83 less a month.

Lawmakers also didn’t work out a plan to reduce the federal
budget deficit, which means automatic across-the-board spending
cuts, known as sequestration, began taking place on March 1,
weighing on the economy at a time when government outlays were
already a drag.

Government spending subtracted 1.4 percentage points from
growth in the fourth quarter. Military outlays declined at 22.1
percent annual pace, the biggest decrease since the third
quarter 1972.

‘Remain Cautious’

“As we entered 2013, we were cautiously optimistic in
light of the economic uncertainty in many of our markets,”
Chris Conway, chief executive officer of Clarcor Inc., said
during a March 21 earnings call. “We expect economic activity
in many of our markets to accelerate, but we remain cautious as
current indicators point to uncertainty still. Europe continues
to struggle, China growth is moderating and the U.S. continues
to deal with political stalemate.”

Clarcor, based in Franklin, Tennessee, makes industrial
products like Baldwin air filters.

The economy will expand at a 2 percent rate in the first
quarter, according to the median estimate of 73 economists
surveyed by Bloomberg from March 8 to March 13.

Real gross domestic income for the fourth quarter was also
released today for the first time. The measure, which shows the
money earned by the people, businesses and government agencies
whose purchases go into calculating growth, rose at a 2.6
percent annual rate from October through December after a 1.6
percent increase in the third quarter.

Over the last four quarters, real GDP rose 1.7 percent
compared with a 1.8 percent gain in gross domestic income, the
Commerce Department said.